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World Development,

Vol. 22, No. 10, pp. 1609-1612, 1994 Copyright 0 1994 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0305-750x/94 $7.00 + 0.00

Pitfalls in Technology Transfer: Kenyas Construction Industry


D. LUVISIA BAKULI University of Nairobi, Kenya

growth in technology adoption by developing countries is evidenced by the large number of hardware and software imports in engineering, medicine and telecommunications. Although each import carries with it both process and management technology, very little is done to adapt the attendant management styles to suit the cultural and environmental conditions in the developing countries. This paper discusses how rigid management organizations structures and tendering procedures can stifle the growth of a locally controlled construction industry in a developing country. It traces the unsuccessful efforts by the Kenyan government to directly intervene in the transfer of technology by enacting well intentioned but difftcult to implement legislation.

Summary. - Tremendous

1. INTRODUCTION
The construction into two categories: Building construction industry can be broadly divided building and civil engineering. includes heterogeneous prod-

of Works that favor local businesses contracts.

when awarding

(a) The National Construction Corporation In 1967, through an Act of Parliament, the Kenyan government set up a National Construction Company (NCC) to train African contractors in construction business management (Republic of Kenya, 1967). The seed money used to establish this company was provided by NORAD, a Norwegian funding agency. The NCC was given both general and specific powers to promote, assist, and develop the construction industry (Republic of Kenya, 1972). Generally interpreted the NCC Act empowered the corporation to operate as an architectural and engineering firm. It could also own and manage either a management institute or a technical college, operate a manufacturing business and own construction equipment for commercial use. Because no other organization was allowed to perform all of the above functions, this was an enviable position for NCC to hold in the construction industry. Furthermore, the NCC Act permitted the corporation to have a say in the design of the syllabi at institutions that train personnel for the construction industry. At present there are over 10 institutions that offer courses in construction technology. They range from vocational training centers to colleges or architecture

ucts such as housing for direct consumption; schools, health centers and office buildings for provision of services; and factories and warehouses for both production and provision of goods and services. Civil engineering products are also diverse, ranging from simple operations such as site clearing and fencing, construction of parking lots for projects that require heavy machinery and large capital investment, e.g. dam construction, airport construction and dredging of harbors. In many cases both civil and building works are carried out in a single project. These two activities are always grouped together in national accounts and statistics. Thus, the diversity of the products, the detailed design, and the scale of operations have necessitated a fragmented organizational structure in the construction industry. Consequently, very advanced management skills are required to successfully run a construction business.

2. INDIGENIZATION

POLICIES

Several approaches have been used by the Kenyan government to deliberately involve indigenous businessmen in the construction industry. Most notable are the establishment of the National Construction Company and use of policy guidelines by the Ministry

*Final revision accepted: April 27, 1994. 1609

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and engineering at the universities. Yet, the NCC never participated in the design of courses taught at these institutions. For over 20 years, none of these colleges offered a construction management course. It was not until in mid-1980s that the Department of Building Economics at the University of Nairobi introduced a construction management course. Even then the course only offered theories of management practices, It is, however, a good starting point that needs to be extended to include a semester of internship or field experience. The NCC on its part narrowly . . . interpreted its terms of reference as simply an extension service to African contractors to enable them to compete more effectively with longer established Asian firms (Wells, 1972). To date there are very few African contractors that would trace their success to the help they received from the NCC. Although the Kenyan government established a corporation to indigenize the construction industry, it did not define measurable objectives to be achieved by the corporation. Twenty-five years later the corporation was disbanded without having established a single viable indigenousowned construction company.

also be given incentives to offer internships struction management students.

to con-

(ii) Tender him The plight of the African contractors has continued to receive government attention and concern. The Ministry of Works operates a tender bias on domestically funded projects, aimed at promoting Africans participation in the construction industry. The tender bias is divided into three categories. For contracts of up to Kshs. 50m, preference is given to any African contractor bidding for the project and is within 5% of the estimated contract value despite there being a nonAfrican contractor with a lower bid. The second level is a bias of 2.5% for projects whose estimated value is between Kshs. 5m and Kshs. 20m. Finally, a I % bias is offered for contracts whose estimated value is between Kshs. 20 and Kshs. 50m. The rationale behind the bias is that non-African contractors who have better access to credit facilities and have more efficient management structures in their organizations are able to undercut African contractors on any project. No studies have been carried out to determine the efficacy of the tender bias scheme.

(b) Policy guidelines

(c) Categories of construction contractors Other than working as subcontractors to large Asian-owned or foreign-owned general construction firms, most of the African contractors do minor building maintenance work for the government. Indeed government building maintenance work is a preserve of the African contractors. The Ministry of Works register of contractors eligible to bid for government contracts categorizes them by nationality and by the value of contracts they are able to execute. According to, the definition in Table I, small contractors are in category F, G and H. A survey of the register in 1986 revealed that there were about 1,500 contractors in these three categories, and all of them were owned by Africans (Bakuli, 1987). The size of a firm depends primarily on the amount and frequency of jobs that it gets over a year. The large number of firms in these categories means that they have to share the few jobs available, thus they cannot afford to hire permanent employees. The same survey established that a majority of these businesses were single proprietorships with on-call supervisors. Operating in this manner did not help them gain managerial skills. Moreover, few of the part-time supervisors felt any allegiance to one particular contractor. In addition to the Value Code Register, the Ministry of Works categorizes contractors by citfzenship. They are divided into three categories: African, Non-Citizen and Other-Citizen. The contractors have the option of registering work in any of the eight provinces. Twenty percent of these contractors are in

Most policy guidelines for various sectors in the economy are contained in the development plans published by the Ministry of Economic Planning every five years. The guidelines adopted by the government for the construction industry can be divided into two broad categories: direct and indirect intervention. Under indirect intervention, the government imposed a training levy and set up a craft training center. It was hoped that the contractors would send their employees to the center for skills training. The direct intervention policy involved setting aside some categories of work for African-owned businesses.

The government imposed a surcharge of 1.25% of the contract value as a training levy on all contracts whose value exceeded Kshs. 50,000. The levy was an incentive for private contractors to send their unskilled employees to the National Industrial and Vocational Training Center (NIVTC). Very few contractors made use of the facilities at NIVTC. Contractors gave various reasons for not participating in the training program. A majority of the contractors feared that by sending employees for training, they would be training future competitors in the construction business. This approach ought to be revised so that the money collected as a training levy is donated to colleges to fund research and development programs in construction management. Contractors may

PITFALLS

IN TECHNOLOGY

TRANSFER

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Table 1. Value code of approved contractors, Ministry of Works, 1986 African (2)
0

Category

Value, Kshs. 000,000 30.0 + 20.0-29.99 10.0-19.99 5.0-9.99 2.5-4.99 1.5-2.49 0.75-1.49 up to 0.749 Total

(1) 7 3 15 45 92 143 145 264 714

(3)
0

(1) 20 13 12 11 8 5 3 3 75

Other-Citizen (2) 0 0 0 1 1 0 0 1 3 156

(3) 5 8 3 17 10 11 12 12 78

(1) 49 24 20 21 17 26 18 17 192

Non-Citizen (2) (3) 2 1 2 1 4 2 1 0 13 303 3 8 17 17 18 9 9 17 98

0 1 1 10 20 31 101 164 1,814

0 11 35 96 156 158 480 936

Source: Bakuli, D. B. L. (1987), p. 27. Interviews with building contractors. the Other-Citizens or Non-Citizens category. Sixty-eight percent (68.2%) of the 20% are in value categories A to E. Contractors in these categories may bid for contracts with a value over Kshs. 5m. Although 80% of the firms are African-owned, however, 65.9% of these are in the lowest three value categories, F to H. This means that African-owned firms cannot bid for contracts over Kshs. 2Sm, which is equivalent to the cost of a five-bedroom suburban Nairobi house. The scale of the works on such a project cannot provide the contractors with the necessary experience to handle bigger jobs. An examination of the distribution of contracts awarded by the Ministry of Works between January and August 1985 showed that of the 40 new building construction contracts awarded in this period, 22 were awarded to African contractors (see Table 2). Five out of the 22 contracts, however, were awarded to one African contractor. The total value of the five contracts was five times the value of the remaining 17 contracts (Bakuli, 1987). Thus, the average value of the contracts awarded to African-owned businesses is further reduced by this skewed awarding of contracts. Most of the indigenous contractors ended up with projects whose value was below that of the category in which they were registered. Again, the scale of operations on the projects were such that it could not offer the indigenous contractor challenges in management. Faced with such problems as insufficient work, lack of experience and lack of finance, local contractors either

resort to devious means to complete project whenever they win a contract.

a construction

3. PROFILE OF INDIGENOUS CONTRACTORS Moavenzadeh (1984) suggests that there are five stages that the construction industry goes through as a country develops: -Foreign firms do most of the work because they are the only ones with sufficient expertise to handle larger projects; local subcontractors develop; - Small, local contractors execute the smaller projects; - Local contractors take most of local work regardless of magnitude; - Local firms form joint ventures with foreign firms as necessary; and - Local contractors go abroad. Unfortunately, this pattern of development does not hold true for Kenya. The sector has stagnated at the level where small contractors are predominant and execute small maintenance projects. For the suggested pattern of growth to be realized, solutions have to be sought outside government. Experience indicates that to enact specific legislation that makes transfer of management technology mandatory will not succeed. Joint ventures between multinational corporations (MNCs) and local contractors should be

Table 2. Distribution Category Total no. contracts Total value in Kshs. Avg. contract value Kshs.

of new construction projects from Januaq African 22 33,744,002.10 1,533,818.30

to August 1985, Ministry of Works, Kenya Non-Citizen 16 400,209,001.80 25,013,063.00

Other-Citizen 2 28,944,628.80 14.472.3 14.00

Source: Bakuli, D. B. L. (1987), p. 28.

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encouraged when awarding contracts to MNCs. It is not enough to require that local contractors operate as subcontractors. First, it may not be economically feasible to subcontract certain projects. Second, the subcontractors may not learn much from the main contractor since their interaction is limited to just a few site meetings. Better management skills can be learned in an environment where the local contractors are allowed to observe and participate in the decisionmaking process by the MNCs. An arrangement which allows local contractors to be on the management boards of joint ventures with the MNCs would help transfer managerial skills. In an attempt to foster construction management technology transfer, the Taiwanese government required in 1991 that foreign firms bidding for infrastructure contracts enter into joint ventures with Taiwanese firms in licensing or research and development (ENR, 1992). The first phase of this six-year project ends in 1997. It is instructive for other developing countries to study its implementation so that they can draw useful lessons from it.

4. CONCLUSIONS Solutions such as the tender bias are not especially helpful since the bulk of the construction projects in Kenya are financed by donor capital, which is not subject to the bias. Moreover, the use of a tender bias introduces nepotism and corruption in the award of contracts. It is worth noting that although the educational level has not been an impediment to running a successful business enterprise by Kenyans (see Marris, 1971), the construction business requires a level of knowledge beyond that ordinarily possessed

by, say, a shopkeeper or taxi cab operator. The contractor must not only deal with other highly educated professionals, but also handle complex business operations. Several reasons can be hypothesized for the poor performance of the NCC during its 25 years of existence. First, without an understanding of the backgrounds, therefore, strengths and weaknesses, of the local contractors, the NCC could not design appropriate management courses. Second, the NCC did not have personnel with sufficient construction management skills to transfer to indigenous businessmen. The multinational construction companies operating in the country are capable of transferring these skills. Different approaches need to be sought to involve them in the transfer of managerial skills to local entrepreneurs. Whatever strategy is adopted, the govemment should reduce its involvement as much as possible. In addition to local participation the imported technology ought to be depackaged to increase use of locally available technology (Coughlin, 1991). Although the impact of MNCs on the local economy has been studied in several sectors (for example see Kareithi, 1991) on the linkages of MNCs and foreign owned media and their impact on the local economy. there has been relatively little study on the impact of MNCs on the construction industry in developing countries. Such sectoral studies will not only identify locally available technology but also provide a theoretical framework for engineering management and construction economics studies. In addition, studies of new training models should be undertaken by teams of industrial psychologists and engineering management theorists to identify key transferable managerial skills and the environment that enable their transference.

REFERENCES Bakuli, D. B. L., An evaluation of the training of small-scale contractors: A case study of the national construction corporation, Masters Thesis (Nairobi: University of Nairobi, 1987). Coughlin, Peter, Strategy and tactics for negotiating joint ventures and technology-transfer agreements: Lessons from Kenya, in P. Anyang Nyongo and Peter Coughlin (Eds.), Industrialization at Bay: African Experiences (Nairobi: Academy Science Publishers, 1991). ENR, Engineering News Record, Taiwan plans to upgrade technology transfer levels (February 3, 1992), p. 3 1. Kareithi, Peter J. M., Multinational corporations and foreign owned media in developing countries: Lonrho and the Standard Newspapers in Kenya, Contemporary Crises, Vol. 16 (1991), pp. 199-212. Man-is, P., and A. Somerset,African Businessmen (Nairobi: East African Publishing House, 197 1). Moavenzadeh, F., The construction industry in developing countries, in Contributions to So&d Economic Growth (Nairobi: UNHS. 1984). Republic of Kenya, The Development Plan, 1966-1970 (Nairobi: Government Printer, 1967). Republic of Kenya, Law.~ of Kenya, The NCC Act, Chapter 493 S. 15 (Nairobi: Government Printer, 1972). Wells, J., The construction industry of East Africa, Paper 72-2 (Dar-es-Salaam: Economic Research Bureau, 1972).